Is The Market Pricing E-Trade Fairly?

by Trefis Team
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E*Trade Financial (NASDAQ:ETFC) has seen impressive growth in recent years. The brokerage’s revenue grew 22% and its stock price jumped 43% in 2017. With the expectation of rate hikes in the upcoming years, we expect significant growth in interest earning assets and related revenues going forward. Improvement in U.S. macro conditions should drive trading volumes and consequently, trading commissions. The acquisition of OptionsHouse in 2017 should further boost the brokerage’s customers and asset growth in the future.

Currently, we have a price estimate for E-Trade of $53, which is slightly below the market price. We have also created an interactive dashboard which shows our forecasts and estimates for the company; you can modify the key value drivers to see how they impact the company’s revenues, bottom line, and valuation.

We have arrived at our price estimate for E-Trade based on EPS projections of $3.66 for 2018, and a P/E multiple of 14.4.

E-Trade’s generates revenue from three primary sources – interest earning revenue, trading commissions, and fees/other. Interest earning revenues should be driven by rate hikes and the integration of OptionsHouse.

Greater revenues should drive margins higher, which the recent tax overhaul should boost the company’s net income.

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